Introduction to Balance Sheet

accountingnotes By accountingnotes, 20th Jan 2011 | Follow this author | RSS Feed
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Financial Accounting and Reporting Lesson 7: Introduction to Balance Sheet

Balance Sheet

This is an overview of the Balance Sheet. A more detailed discussions about the components of the balance sheet will be discussed in future articles.

Part of the full set of the financial statement set is the balance sheet. Major components of the balance sheet are as follow:

Assets. Assets are the probable future benefits owned by an organization. These are derived from past economic transactions (i.e., cash, accounts receivables, investments, due from affiliates, marketable securities, inventories and property, plant and equipments).

Liabilities. Liabilities are probable future sacrifices of assets. These requires an organization to transfer its ownership of assets to another entity. Liabilities are a result of economic transaction with other entities (i.e.,accounts payable, long term liabilities, bonds payable and due to affiliates).

Equity. these are the residual amount of assets after deducting the liabilities. This includes the investment of shareholders and the distribution of earnings to them.

The balance sheet is also called the statement of financial position. There are many uses of balance sheet. Some of the most common sues are as follow:

1. Creditors need to determine the solvency and long term liquidity of the company. This is usually used by lenders to determine the general
2. Investors use it to evaluate the strength and mix of ownership to debt
3. Regulators use it to assess the compliance of the organization to laws and regulations
4. The balance sheet can also be compared from one period to another to determine the trending of its assets. It can also be compared to a competitor’s balance sheet to determine its market share.

The individual components of the balance sheet will have separate articles to be published in the following lessons.

More CPA review notes in Bookepeedia.

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